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100 Stimulus Packages Couldn’t Restore the Economy

By: Steve Johnson

1/5/2010 - 46 Comments

It was almost two years ago that John McCain said, "I am here to cut hundreds of billions of dollars out of wasteful and unnecessary spending in America”. 

Since then, America has chosen a different path with different leaders and the result has led the economy into the largest disaster in modern history.

John McCain and Sarah Palin would have led the nation into a much better economic recovery.  

Instead we got stimulus packages, bailouts and the Fed injecting trillions of dollars into the economy – and a deepening recession to follow.

Now that the policies have clearly failed, Congress and the President and pushing for more of the same.  But it’s not going to work.

100 stimulus packages couldn’t restore the economy, and the each additional bailout will only put the economy further from true recovery. In the end, we will need much deeper cuts to first recover the money from this administrations failed stimulus packages and then to recover from the credit expansion of the last decade.

It’s going to take new leadership to take the nations monetary policy in the complete opposite direction.

Stimulus packages destroy the economy in many ways

They trick the public into spending their life savings on non-essential goods while taking money away from wealth generating activities.

The injections of new money into the economy benefits the individual who receive the newly created money first at the expense of those who receive the new money later on as the money flows into the economy at large.  This is because the second and third receivers of the newly created money pay higher prices for goods because the additional money in the economy increases the demand for goods.  In effect the second and third receivers of the money suffer a lost of their wealth equal to the first receivers of the newly created money. 

Stimulus packages don’t create new wealth in the economy, but instead they confiscate wealth from the public at larger and give it to the individuals that receive the money.  Government stimulus packages are a means to loot your neighbor without having to break into their home.

Instead of creating new wealth, government stimulus packages take more wealth out of the economy and simply spread it around for everyone to spend.  The worst part is that the receivers of the newly created money are highly encouraged to spend the money they receive. 

The result is that the accumulated wealth that exists from previous efforts by hard working people, is spent and there is now less wealth that can be used for businesses to create jobs that produce new wealth in the future. 

Also, the first receivers of stimulus package money don’t understand that the wealth they have been given has been created by someone else's hard work and personal sacrifice.  So they run out and spend the money on less-essential consumer goods rather than on real wealth producing goods or investments. 

The money they spend on less-essential consumer goods causes the producers of those goods to increase their production of these items and a decrease in the production of essential goods.  This further distorts the economy by growing the non-essential businesses that really need to go out of business so that their capital and resources and employees can be put to work for businesses that create essential goods and services, which help to reduce the cost of the most important goods at a time of economic recession. 

The poorest of the poor end up with the bill as higher prices are the effects of inflation and a decrease in supply of essential goods caused them to fork over what little money they have left.

You read more about this effect in my article, The Reason the Rich are Getting Richer is Because Inflation Pushes Money Up and Inflation is Accelerating 

What all this means is that government stimulus packages trick the public into spending the wealth that they have saved from previous generations through hard work and savings, and divert that wealth to non-essential goods and away from wealth generating activities. 

None of this could be possible without the increase in the money supply created by government stimulus packages.

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